Engineering Services Outsourcing (ESO) refers to outsourcing certain non-physical engineering tasks such as designing, simulation, and consultation, called as engineering services, to specialized vendors or engineering services providers. Numerous factors such as enhancement of efficiency, improvement in processes, cost advantage and lowered time-to-market for the products have been responsible for firms resorting to outsourcing their engineering services. Increased need for cost reduction is a major driver for market growth.

Increased global competition has given rise to the need for cost reduction among companies across several industries. Global companies have realized they can augment their capabilities with resources provided by IT services firms specializing in engineering design, instead of using expensive in-house resources. Outsourcing engineering services can thereby allow companies to get the most out of constrained budgets and increase concentration on more critical matters, such as executive management decisions. Shorter product life cycle is another key driver impacting market growth.

Increased global competition has given rise to the need for cost reduction among companies across several industries. Global companies have realized they can augment their capabilities with resources provided by IT services firms specializing in engineering design, instead of using expensive in-house resources. Outsourcing engineering services can thereby allow companies to get the most out of constrained budgets and increase concentration on more critical matters, such as executive management decisions. Shorter product life cycle is another key driver impacting market growth.

Increased competition coupled with the ever-changing consumer buying behavior have forced companies to continually innovate and develop new products at a faster pace owing to which the existing products get obsolete quicker, thereby shortening their life cycles.Companies look to harness the expertise of engineering service providers by outsourcing their R&D to launch new products faster and at a lower cost.

Furthermore, automotive and aerospace OEMs have increased their tie-ups and associations with ESO vendors owing to constrained budgets and the need to focus on more critical R&D activities. This is expected to further boost ESO market growth. Confidentiality and security threats, primarily revolving around intellectual property (IP), are a restraint for market growth. Companies have to exert a high degree of vigilance to avoid the theft of IP, as legal enforcement, especially in a few offshore locations make it difficult to prosecute firms who allegedly misuse patents and confidential data. IP theft may result in significant losses for the business.

Consumer electronics is expected to be the fastest growing industry catering to the services provided by ESO vendors Certain important engineering services required for production of consumer electronics devices, which include custom algorithm development, design and implementation, development and testing, embedded software development, hardware design, product development services and system level architecture, are provided by ESO vendors.

Asia Pacific dominated the market in 2013 and accounted for over 50% of the market in terms of revenue. It is also expected to exhibit the highest growth rate from 2014 to 2020. Combination of factors such as presence of a large talent pool, strong manufacturing base, emerging local demand and cost arbitrage have been responsible for the aforementioned countries, particularly India and China to be the most sought after destinations for offshoring engineering services. Europe followed Asia Pacific in terms of market revenue share in 2013.